Saturday, February 17, 2007

Setting Sales Goals

Setting sales goals is a core activity of sales departments. The establishment of the goal for annual, quarter, and month is probably the single most critical decision that shapes and drives a sales department. Every company needs and deserves a purpose built sales team that has the capability to deliver on the sales goals of the organization. When the sales goal is overlaid with the company’s offerings, the resources available, level of marketing support, route to market, market potential and competitors; a sales strategy can be formulated that dictates the sales tactics (sales plan). A sales plan simply outlines how the sales and marketing resources that are available are going to be allocated to achieve the goal.

Just setting a goal, without examining impact to the sales and marketing department is not a reasonable approach. A good everyday example of a goal without a reasonable plan would be someone who wants to loose 15 pounds in 90 days. That is a stretch goal and depending on the weight and health of the individual that may or may not be a good goal. Let’s assume that it is a good goal. A very bad plan to achieve this would be for the individual not eat until they had lost the 15 pounds. Not a very practical plan. The plan that sits behind a goal has to be reasonable to implement. The plan must have the resources available to permit proper execution.

If a developed sales plan calls for a 40% increase in marketing spend and 6 new hires to sales, but there is only budget for 20% increase in marketing spend and 2 new sales hires, then the success of the goal comes into question. The goal and the plan are tightly integrated because of their nature. The plan must be reasonable in scope, and look at potential contingencies.

As an example, consider a mythical company that the previous year achieved 50 million in sales; this represented an increase of 12% over the year before. Then let’s assume that management’s goal is to grow an additional 12% in the new year, this would put the new revenue target at 56 million. The question then becomes, what is the sales and marketing plan that has a high probability of achieving that goal, all other things in the market being equal (competition, disruptive technologies, major market shifts, degree of market penetration, maturity of market, significant new products, major changes in your go-to-market partners, etc). All things being equal, your sales force should become more efficient year over year. So the assumption becomes that to achieve a 12% increase in annual sales the sales budget would need to increase less than 12% (this is dependent of the relative size of the organization and market conditions).

When the goal is established, an assessment is made of the previous year’s success balanced against budget expenditures, a draft plan is built that accommodates the expected growth for the coming year, and the plan’s implementation cost is then forecasted. If goal, plan and budget are signed off on then the next step is implementation and measurement.

The goal and the plan must align. This seems so obvious, but I have often seen examples with little or no alignment between the two. Most often this happens when the sales plan is not adapted to fit the company’s product offering, the potential market and the internal resources available. Critical for success is a company’s alignment with the market, and the internal alignment of the sales and marketing team.

Points for consideration:

  • Goals need to be clearly defined
  • Company’s sales and marketing plans need to align to goal
  • Plan has to be resourced to the right level
  • At the very least middle management needs to buy into both the goal and the plan to achieve the goal. This is critical for success.
  • The entire sales and marketing team should believe that the goal is obtainable, and see a way forward to achieve the goal.
  • Everyone in sales and marketing must understand their role and their contribution to the company goal; if this is not clear then they become disassociated from the process of meeting the goal.
  • Senior management must be completely supportive of the goal, the plan and the allocation of resources to support that plan.

One last comment on this subject is that many times in an organization there is imperfect plan alignment and even internal plan conflict can exist. It is hard enough to develop customers and grow sales, but when there are core conflicts inside an organization it becomes doubly hard. There is never an environment of 100% peace, love and harmony; the complexity of an organization is too great to achieve that, and a small level of dissonance is not a bad thing. However, there should never exist a condition that takes the focus off of the plan and execution of the plan.

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